Avrams v The Queen

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Net-Worth Assessment – The Need for Evidence

Avrams v The Queen, 2012 TCC 247

The issue in this case was a factual determination of whether the taxpayer had unreported income for the years in question, as assumed by the minister on the basis of a net worth assessment method pursuant to subsection 152(7).

The taxpayer was asked to file tax returns for the 2001-2006 tax years. He did so and was reassessed by the CRA on a net-worth basis pursuant to subsection 152(7), based on bank deposits, bank statements, mortgage statements, investments, and credit card statements.  The taxpayer was the only witness, read a prepared statement, and tendered no exhibits. He stated that the amounts reported were fictional and made up by the person who prepared his return.

The Court’s analysis focused entirely on the evidence provided, the lack of evidence, and the contradictory evidence.  Both the taxpayer testimony and his sister’s declaration were found to be unreliable due to their drug addictions at the time, and statements that there is a lack of complete recollection by both the taxpayer and by the sister.  Thus, there was no evidence sufficient to demolish the assumptions of the Minister.

The Court summarised the law in relation to net worth assessments by reference to

Dao v. The Queen, 2010 TCC 84, where Justice Campbell stated:

Therefore, the method, by its very nature, will result in an inaccurate approximation of a taxpayer’s income. While this may produce unsatisfactory results, it is based on the premise that, in a self-assessing system, a taxpayer is in the best position to know the exact amount of income earned over a period of time.  If proper records are kept, then it should be an easy task for a taxpayer to factually point out the errors in the Minister’s assessment and properly support the proposed changes to the assessment with the appropriate documentation or other evidence. [emphasis added]

– Sas Ansari, BSc BEd PC JD LLM PhD (exp) CPA In-Depth Tax 1, 2 &3

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